April 04, 2001, 10:17 AM — NEW YORK -- Wall Street executives last week were unclear how to comply with the document-storage provisions of electronic-signature legislation that took effect yesterday.
The Securities and Exchange Commission has its own guidelines for how long companies should store documents and give customers access to those electronic files. But those aren't as strict as the stipulations in the electronic-signatures law, which has numerous protections to ensure that electronic documents don't replace paper ones in cases where consumers don't have computer access.
"Some of us in the industry approach these requirements with a certain degree of nervousness," said Christopher Gilkerson, vice president and associate general counsel at San Francisco-based brokerage Charles Schwab & Co. "They raise the thorniest issues of interpretation."
At a Securities Industry Association conference on the topic last week, some attorneys argued that the electronic-signature act applies only in certain cases, such as when contracts are signed, and doesn't necessarily cover all documents that are delivered electronically.
Mark Borges, the SEC's attorney adviser at the Division of Corporation Finance, advised brokerages to comply with both sets of rules until the SEC makes a final determination on its stance. But he said his remarks shouldn't be viewed as the agency's official stance on the matter.
Meanwhile, the electronic-signatures law, officially called the Electronics Signature in Global and National Commerce Act, allows for exemptions. That means the SEC could decide that online brokerages could continue to send out digital prospectuses to customers without verifying that the customers can access the information.
SEC spokesman Chris Ullman said the agency doesn't yet have an official response to Wall Street worries about conflicting e-document rules. "We are aware of the concerns that people have, and we are developing regulatory guidance that we hope to have out soon," he said, but he could offer no definite time frame.
Attorneys for big brokerages said they're impatient with the SEC's wait-and-see attitude.
"If the commission doesn't put forward a view, there's going to be enormous confusion out there," said Sam Scott Miller, a partner at Orrick, Herrington & Sutcliffe LLP in San Francisco. "What makes you think that a year from now you're going to know an awful lot more than you know now? And meantime, people are going to be making mistakes."
Uncertainty Rules
Others, such as investment bankers, said they wouldn't want to go through the expense and hassle of revamping their institution's business processes or invest in new technologies to meet the new electronic-signatures requirements only to have to make another set of modifications should the SEC elect to change its guidelines.
Wall Street executives are also concerned that some of the rules spelled out in the e-signatures legislation are impossible to carry out.
For example, under the legislation, digitally stored documents must be kept in an "unalterrable" state, according to Section 201 of the act. This is an unreasonable demand, said Michael L. Michael, senior vice president and chief compliance officer at Fidelity Investments in Boston.
"We all know that in a paper-based environment, there is no such thing as an unalterable document," he said.
In the electronic world, records can also be tampered with. Optical disks that can be written only once can be altered, he said.
"If you were to smash one with a hammer, that's altering it," he said.
